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Why Square Stock Got Clipped Today

By Rich Smith – Dec 10, 2021 at 7:49AM

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Jefferies delivers a backhanded compliment, and nervous investors sell.

What happened

Shares of fintech powerhouse Square (SQ 3.97%) had dipped 3% as of noon ET on Friday, despite receiving a generally positive endorsement from investment bank Jefferies today.

But one negative note from the analyst led to a decline in the stock.

Glowing red arrow trending down on a stock chart.

Image source: Getty Images.

So what

In a note covered on today, Jefferies argues that Square stock is a buy and deserves a target of $240 per share, because all the bad news from Square's November earnings report is now baked into the price, and the stock looks "catalyst-rich in 2022."

The bad news: Jefferies thinks that monthly active users of Square's Cash App are growing more slowly than previously expected, and points to "commentary from management" indicating a downside in the growth rate in the fourth quarter of 2021.

Now what

Jefferies estimates that the Cash App will generate only $2.46 billion in revenue for Square this quarter, 9% less than everybody else on Wall Street is predicting. If the analyst is right about this, then it suggests Square could follow up its third-quarter earnings miss with another miss.

Granted, in the long term, Jefferies remains optimistic about Square stock, hence the buy rating. And it sees the shares as nearly 25% undervalued.

But it's the short term that a lot of investors are nervous about, and with the prospect of back-to-back earnings misses now hanging over the stock, you can't be too surprised that a lot of investors are selling Square today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Square. The Motley Fool has a disclosure policy.

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